The Tulane Maritime Law Journal is proud to present the first in a series of forthcoming posts concerning recent developments in admiralty and maritime law written by members of the Tulane Maritime Law Journal.

*This post has not undergone our full editorial process.

 Man Ferrostaal, Inc. V. M/V Akili, 704 F.3d 77 (2d Cir. 2012)

The Second Circuit recently upheld in rem liability against the M/V AKILI for negligent stowage of cargo, despite a hybrid “Free In/Free Out” (FIFO) clause in the voyage charter providing that stowage was “free of risk … to the vessel.” Man Ferrostaal Inc. had voyage chartered the vessel from the time charterer, SM China Co., to import 9,960 thin-walled steel pipes from Shanghai to New Orleans. When stevedores loaded the pipes in Shanghai, Ferrostaal’s marine surveyor raised concerns about stowing the pipes underneath thicker, heavier pipes bound for Houston. These concerns were ignored. The thin-walled pipes arrived in New Orleans in September 2006 and had suffered compression damage, flat ends, and broken securing bands.

A defining feature of admiralty practice is the action in rem—an action against the vessel itself. By using the action, a claimant can have a vessel (the res) arrested, forfeited, and sold at public auction without the need for the appearance of a natural person or corporation as defendant. A vessel may be liable in rem on a bill of lading that was not issued by or on behalf of the vessel’s master because by setting sail with cargo on board a master ‘implicitly ratifies’ the contract of affreightment between shipper and charterer. FIFO clauses in a charterparty typically allocate to the shipper responsibility for loading and unloading. Even if COGSA applies, rendering the carrier’s duty to “load … stow … and discharge the goods carried” non-delegable, FIFO clauses can enable a vessel owner or charterer to be indemnified from the shipper or third party responsible for any cargo damage.

In this case the court faced two issues: (1) whether an action in rem against the M/V AKILI was unavailable because vessels are not “carriers” within the meaning of COGSA, and (2) whether the hybrid FIFO provision purportedly absolving the M/V AKILI of in rem liability was valid. In addressing the first issue, the court accepted the owners’ claim that vessels do not fall within COGSA’s definition of carrier. However, it rejected the argument that this precluded in rem liability, as the action is coextensive with COGSA and arises independently under general maritime law. In addressing the second issue, the court accepted the cargo interests’ claim that the FIFO clause purported to lessen the carrier’s COGSA liability and was therefore null and void. COGSA mandatorily applied to the carriage due to a Clause Paramount in the voyage charter. This rendered moot the parties’ disputes about whether the carriage was common or private carriage (the M/V AKILI carried multiple cargos owned by multiple shippers) and whether the subsequently issued bill of lading was the contract’s governing instrument.

The case clarifies the distinction between in rem liability and COGSA liability. While COGSA may serve to alter a carrier’s obligations and thereby determine the outcome of an in rem action against a carrier’s vessel, a maritime lien arises independently under general maritime law when the vessel sets sail with cargo. See generally Martin Davies, In Defense of Unpopular Virtues: Personification and Ratification, 75 Tul. L. Rev. 337 (2000). The court’s dictum also reflects a shifting trend away from using the common/private carriage analysis as dispositive of whether COGSA applies, and favors an approach focusing on the exact terms of the charterparty and whether those terms were substantially altered by the issuance of the bill of lading. See Thyssen, Inc. v. Nobility MV, 421 F.3d 295 (5th Cir. 2005). The case also shows that owners should exercise caution in chartering vessels to parties against whom indemnity provisions will be unenforceable, and in incorporating Clauses Paramount when COGSA terms supersede FIFO clauses or other important liability provisions. See Associated Metals & Minerals Corp. v. M/V Arktis Sky, 978 F.2d 47 (2d Cir. 1992). Finally, the case is another example of a court side-stepping the issue of whether COGSA preempts the bailment cause of action under general maritime law. See generally Jason P. Waguespack, COGSA Rules the Seas: Why Bailment Should Be Jettisoned in COGSA Actions, 1 Loy. Mar. L.J. 103 (2002).

For the full opinion, please visit: Man Ferrostaal, Inc. V. M/V Akili, 704 F.3d 77 (2d Cir. 2012).